CPG Manufacturers and Retailers Seek to Sync-Up on Pricing With Automation

Getting paid what is invoiced is among the most basic functions of finance and business in general.

The amount billed offers visibility to the seller, allowing them to plan for money to be paid by buyers into the proverbial coffers, to be paid out to cover expenses. Visibility is critical for strategic planning — and for matching cash flow to obligations.

But that visibility is often lacking for the brands, both large and small, that make the products that wind up on retailers’ shelves and are ultimately bought by consumers.

Dash Bibhudatta, vice president and general manager at Inmar Intelligence, told PYMNTS in an interview that deductions can wreak havoc with consumer packaged goods (CPG) makers’ planning — and margins too.

And, amid labor shortages and inflation, protecting margins has never been more top of mind.

At a high level, he explained, the deductions occur when retailers pay less than they owe to brands. It’s a standard practice in the industry for retailers to get invoices from brands, but then opt to deduct amounts for goods damaged before arrival, for shipping delays and perceived billing errors.

Then, the retailer pays the (reduced) amounts that they say they owe.

As Bibhudatta told PYMNTS, “The deduction is basically the difference between what you’re expecting the retailer to pay versus what they’re actually paying.”

He cautioned that not all deductions are bad. In fact, many are just a normal part of doing business — take an ongoing “buy one, get one free” offer, for instance.

However, invalid deductions wind up hurting CPG makers. The brand that was planning on $1,000 coming in the door receives $800 instead, ending up with a $200 deficit — and all the cash flow headaches associated with it.

“You’re stuck with numbers you never expected in the first place,” he said.

As for the impact, Bibhudatta said that deductions can wind up shaving 15% to 20% off a brand’s revenue. Drill down a bit, and 15% to 25% of those deductions are invalid or preventable.

The brand must always be on the lookout for the deductions, must track them down, analyze them and ultimately may opt to dispute them.

Automation and Collaboration

Automating at least some of the process — the extraction and the data analysis — can improve brands’ revenue collection, help cut down on manual back-office work and keep margins intact.

In terms of the automation, through platforms on offer from firms like Inmar, the deductions offered up by the retailer are matched by the brand with corresponding documentation to find out if they are valid or invalid. Artificial intelligence (AI) also helps automate dispute workflows, allowing for collaboration between buyers and sellers.

Inmar facilitates this through its DeductionsLink platform, which is geared toward helping smaller suppliers in the CPG and healthcare sectors dispute and reduce the deductions.

Automation helps skirt the inefficiencies that occur with the traditional steps in dispute resolutions, Bibhudatta said. While manufacturers’ finance teams typically receive a check, read the invoice and make moves to process those payments, those finance professionals may not be able to figure out whether the deductions are valid.

The sales team might confer with the retailer to see if there had been, for example, difficulties with shipments or other logistics frictions that may have impacted orders and spurred the deductions.

Keeping track of it all is difficult — where even the smallest brands might be dealing with, and depending on, dozens of retailers to get their goods off shelves.

“Everyone has their own formats and their own ways in which they send this information,” Bibhudatta said. “The execution lies with finance, and the accountability lies with sales.”

Pretty much every firm is in a rush to close the books at the end of the week, the month or the quarter. The inclination may be just to expense the gap, since the jury’s still out as to whether the deductions are valid, sometimes languishing. There’s a short window in which to lodge a dispute, he said, usually 30 days to 60 days, so for the CPG firms, time is of the essence.

The platform model, he said, allows the CPG’s finance team to get info from multiple retailers and process that data in a timely manner, in collaboration with the sales team, dispute by dispute. Gaps in communication are remedied in real time, he said, with the documentation needed to show proofs of billing, of lading and other activities.

“If you get the right documentation in place, automatically, you will be able to settle all this,” he said.

The settlement itself can be almost automatic, and the platform can establish rules for agreement between retailers and CPG companies. In the end, all parties gain a better understanding of the end consumer (whom they are trying, universally, to serve), how promotions are working and how inventory is moving.

As he told PYMNTS, “Collaboration is the key to success between a retailer and a CPG.”